How Panjak Razdan met SEBI’s ‘Fit & Proper’ person rule
By Sucheta Dalal
On Monday, August 27, Kumar Mangalam Birla, Chairman of the Aditya Birla group personally announced the appointment of Pankaj Razdan as Deputy CEO, Financial Services, of the Aditya Birla Group. Birla’s announcement said that Razdan will report to Ajay Srinivasan, CEO of what is the “core think tank that strategizes and operationalizes the Group's growth in Financial Services” and will “oversee” the Group's existing business and be responsible for building new lines of business.
This seemingly routine announcement is rather exceptional because Pankaj Razdan quit as Managing Director of Prudential ICICI Asset Management under a dark cloud after he was embarrassingly caught plotting to raid the organisation he was leaving, to recruit top managers for the Birla group. The sordid details of Razdan’s move, exposed by a newspaper, showed that he was hatching this plot with Ajay Srinivasan, his new boss, who had just left ICICI Prudential board and Prudential Asia, before him. The bigger irony is that Razdan’s machinations were exposed when Srinivasan submitted his mobile phone to the technology department at Pru ICICI when he quit the organisation. The details of Razdan’s shenanigans are already in the public domain (check a report pasted below).
The point is, Razdan’s and Srinivasan’s behaviour was perfectly acceptable to Kumar Mangalam Birla. After all, it is a competitive business and Razdan was shopping for people in order to add muscle to Birla’s renewed foray into financial services. But didn’t Kumar Birla head the committee that drafted SEBI’s first good governance code for listed companies? Does poaching your employer’s key personnel count as good corporate behaviour?
The regulator’s role in this episode is even more interesting. SEBI, we learn, already had issues with Razdan’s conduct. Its misgivings were serious enough for SEBI’s Whole Time Member, T.C.Nair, to have summoned the Board of Trustees of ICICI Prudential Asset Management Company to formally express his concern about Razdan. It is only later that Prudential ICICI discovered his plan to quit and his attempt to lure people to the Birla group. It then conducted two separate inquiries and indicted him for inappropriate behaviour. Since Razdan intended to quit, Pru ICICI decided that no further action was required other than informing the regulator as well as Kumar Mangalam Birla about its findings. In most cases, such a report would have damaged Razdan’s career; but Birla clearly found nothing wrong in the activities of Razdan and boss Srinivasan. He merely promised not to poach on Pru ICICI’s fund managers.
Now, what did SEBI do when it received a copy of Prudential ICICI’s inquiry report under its ‘fit and proper person’ rules?It actually found a way not to initiate any action on the matter.
How did it do that? Sources say that SEBI seems to have come with the ingenious idea of writing to Prudential ICICI to ask if any investor had been hurt by Razdan’s actions. The answer was naturally negative. After all, Razdan’s plot to raid the AMC for key fund managers was foiled before it could hurt investors.
The response appears to have satisfied the regulator that Razdan and his boss Srinivasan are indeed ‘fit and proper’ to oversee the Birla financial services business, including fund management. Soon after that, Birla personally announced his appointment.
Clearly, good governance is about ticking the right check boxes and, for future reference, the test of ‘fit and proper’ is whether or not investors have suffered a loss.
ICICI Pru accuses former MD Razdan of inappropriate conduct
The Financial Express 20 July 2007
In a major development, the board of ICICI Prudential Asset Management Company has shot off a letter to the Securities & Exchange Board of India (Sebi) accusing the company’s outgoing managing director and CEO Pankaj Razdan of conduct unbecoming of a senior director and violating the fit and proper norms governing mutual funds. The AMC has alleged that Razdan, even while he was functioning as MD & CEO, had made attempts to lure his staff to join a rival organisation, reports - The Financial Express.
The AMC’s move comes after two enquiries–one internal and one at the board level–found Razdan guilty of such misdemeanours. Prudential of the UK, which holds 50% of the AMC, had intercepted mobile text messages sent by Razdan to his board colleague Ajay Srinivasan, who was a non-executive director on the AMC’s board. Srinivasan, who was then an employee of Prudential, has since joined the Aditya Birla Group as chief executive of its financial services business.
When contacted by FE for his version, Razdan first put the call on hold, and then was not reachable until the time of going to press. Sebi officials could not be reached for comment.
Here’s how the story goes. On July 18, the chairman of the AMC’s board received copies from Prudential of mobile text messages exchanged between Razdan and Srinivasan, which could be viewed as acting against the interest of the company, and indicating improper conduct in carrying out functions of the MD by Razdan.
Some samples of Razdan’s alleged text messages seem to indicate his plans. Said one: “Sirjee, few people who hv sacrificed a lot for us n hv refused big job offer shd b taken on priorty as v shd nt allow Reliance to poach ne one from our team. Rgds” Yet another: “Sirjee, almost everyone ready to join across depts... once u join we will hv to move few people initially in sales, ops n service for some quick wins..”
And then again: “Ajay, I had asked ur advice on my product head to resign n join Birla MF now to prepare the roadmap of launches b4 even I m on board….”
And finally: “Thnx sir…very excited. Dnt know how will I pass next few weeks to be on job with you sirjee in nxt 5 years we will create more bigger n profitable institution than ICICI under ur leadership..Rgds.” Based on that information, the chairman constituted an internal enquiry committee to examine the issue, meet Razdan and present its findings to the board. The board, at its meeting, examined the findings of the internal committee and expressed the view that they constituted valid grounds for appointment of a committee of the board to further examine the evidence.
The board, upon reviewing the findings, concurred that there was prima facie evidence of inappropriate conduct by Razdan and that his conduct was not in accordance with the fit and proper requirement expected of a director-especially that of managing director.
The board indicated to Razdan that based on the findings of the internal committee and the board-appointed committee, Razdan had, indeed, acted in a manner which resulted in loss of confidence in him and was, therefore, compelled to sever his relationship with the company.
The board informed Razdan that as it had a regulatory obligation to ensure that only a fit and proper person held office as a director, including the position of MD, it would have to inform the relevant regulatory authorities of the background of cessation of his office. The board also reserved ICICI Bank’s and Prudential’s right to take further action in future.